David Beckworth has a very interesting interview with Paul Tucker, a former governor of the Bank of England. Tucker has a new book on international affairs, and had this to say:
[W]e need peaceful coexistence with China, and that can probably include some trade with China, but that should not include trade with China where we would be overly dependent in vulnerable ways.
There are good arguments here on both sides, but I lean toward engagement with our adversaries (i.e. China, Iran, Cuba, Venezuela) and embargoes aimed at our enemies (Russia.) An enemy is an adversary that has turned violent. Regarding China, I see three important considerations:
1. Engagement with our adversaries is hugely beneficial to both countries when not at war.
2. Engagement with our adversaries gives both sides a strong incentive to avoid war.
3. Engagement with our adversaries can turn out to have negative effect if a war breaks out. That is, if our adversary becomes our enemy.
The fact that two of the three factors point toward the benefits of engagement is not in and of itself decisive. The third factor might be more important.
Perhaps the most famous example of the third factor in action is the case of European gas imports from Russia. Indeed, I’d argue that this single case is far more important to Europe than all the other economic effects of the Ukraine War combined. Nothing else even comes close. In retrospect, it probably would have been better if Europe were less dependent on Russia gas.
Thus the case of Russian gas imports is far and away the best example one could cite for disengaging from economic interaction with our adversaries. (Oil is much different, as it is a fungible commodity that can be traded globally with relatively low transportation costs. The effect of the Ukraine War on the global oil market has little or nothing to do with the fact that Europe previously imported lots of Russian oil.)
I won’t argue that, in retrospect, Europe was wise to rely on Russian natural gas. But what I find so striking about this example is that it doesn’t seem to support either of the arguments made by foes of economic entanglement:
1. The argument that reliance of Russian gas would push Europe toward appeasement of Russia.
2. The argument that reliance on Russian gas would have devastating consequences for Europe’s economy in the event of war.
Neither prediction panned out. Economists keep telling non-economists that markets are surprisingly good at doing a workaround when their are shortages, and non-economists continue to not believe us. And this outcome occurred despite the fact that public policies in Europe (subsidizing wasteful use of gas) actually made the situation worse.
Here’s another point to consider. Russia is currently being aided by economic sanctions that reduce oil output from its competitors, including Iran and Venezuela. Thus if we are going to contrast two policy regimes, it ought to be free trade with Russia and Iran vs. economic sanctions against Russia and Iran. Instead, we ended up with the worst of both worlds, aiding our enemy (Russia) by sanctioning our adversary (Iran) in such a way as to benefit Russia (with higher global oil prices.)
Now let’s return to the three factors that bear on the question of whether or not to become entangled with our adversaries. I cannot be sure how the three factors net out, but I am pretty confident in making the following two claims:
1. We know that US–China trade is hugely beneficial to both countries, and we also know that richer countries tend to be more peaceful.
2. We know that the number one example of the dangers of entanglement, cited by almost all pundits that are opposed to entanglement, did not turn out to have either of the negative consequences that was predicted. Europe did not appease Russia and the European economy was not devastated. And again, this is the best example that anyone can cite; in most other industries the effects of the Ukraine War on European welfare have been trivial.
That doesn’t mean that the foes on entanglement are always wrong. Nordstream 2 was probably a mistake. But the fact that even the European natural gas situation turned out to be much more benign than expected suggests to me that the weight of evidence points toward the benefits of entanglement outweighing the costs, at least in the vast majority of cases. One exception to this generalization might be trade in goods with clear military applications. But with pundits now calling for the banning of TikTok and laws against the purchase of US farmland by the Chinese, I think it’s fair to say we’ve gone far beyond the national security argument.
READER COMMENTS
Jon Murphy
Jan 21 2023 at 7:27am
Great post (as always). I have two comments
Personally, I feel very vindicated about the whole Russia gas event. Back in 2018, I wrote an article for EconLib detailing that national defense is not a particularly good justification for tariffs in the 21st Century. One of the reasons I cite is precisely the ability of markets (that is: people) to adapt and overcome. That ability to overcome is fostered by free trade. The fact that Europe had wide-raging economic connections meant that their reliance on Russian energy was mostly political rhetoric rather than economic reality.
Which brings me to my second point: One of the benefits of a liberal (ie, non-planned) economy is the churn. The planning proponents on the Left and Right see the churn of a liberal economy as a bad thing.* Churn, both by signalling how we can best serve one another (to borrow a phrase from Hayek) and by forcing market participants to account and plan for churn, make an economy more dynamic. Thus, when shocks hit, economic actors can react; it’s just one more event to adjust to. Government planners are quite horrendous as adjusting and adapting plans. Government planners tend to whack their heads against the wall, curse the wall, but keep doing it anyway (for an economic exploration of this point, see my forthcoming paper in the Journal of Instituional Economics ‘Cascading Expert Failure’). Industrial planning, despite the goal of attempting to make an economy more resiliant and less “wasteful,” ends up doing the very opposite: it makes an economy more fragile and more wasteful.
*Here they tend to draw inspiration from the 20th Century socialists like Oskar Lange, who argued job churn is “wasteful.”
Richard W Fulmer
Jan 21 2023 at 7:43am
You make a good case, but I’m not sure that the fact that Europe wasn’t hurt as badly as feared by their entanglement with Russia necessarily indicates that Chinese entanglements are similarly benign. First, Europe’s winter has been relatively mild so far. Second, the value of Russian exports is only about $500 billion per year. China exports over five times that. Third, half of Russia’s exports are energy and raw materials. China’s top exports are finished goods such as computers, phones, textiles, cargo ships, vehicle parts, motorcycles, and housewares.
Also, shouldn’t policy makers consider the likelihood that a trading partner or potential trading partner will become an enemy? China has made no secret that it considers the U.S. an enemy, that it wants to annex Taiwan, that it wants to control the South China Sea, and that it has global imperial aspirations. Given that, shouldn’t we be careful about what we buy from and sell to them? Should we, for example, buy computer chips that could potentially give them the ability to control, say, our communications systems? Should we sell them equipment that they can easily use against us in the event of war?
Jon Murphy
Jan 21 2023 at 10:24am
While there is an intutive logic behind these questions, the more I think about them from an economic perspective, the less sense they make.
Regarding national defense, the US (and most modern governments) are monopsonists. In fact, the US is more than that: through the Defense Production Act, the US government can compel firms to take actions based for defense reasons. Thus, if policymakers are afraid importing products from some adversary, they can just compel defense manufacturers to use American-sourced parts. No need for general restrictions like tariffs. Using tariffs for national defense purposes seems akin to using a bomb to kill a spider.
Indeed, as I discussed in my 2018 article above, the US already does this to some extent with steel. Trump’ steel tariffs did nothing to support domestic military production of steel because we already produce stell for defense purposes domestically.
Richard W Fulmer
Jan 21 2023 at 10:55am
I wasn’t thinking of defense so much as our civilian communications infrastructure. Or, how about our Internet servers?
vince
Jan 21 2023 at 1:35pm
And there’s the problem. There’s more to it than just the “economic perspective.”
Jon Murphy
Jan 21 2023 at 1:38pm
True but irrelevant to this point.
vince
Jan 21 2023 at 1:48pm
But it’s relevant to the larger issue, which is much more important than one narrow point.
Jon Murphy
Jan 21 2023 at 2:46pm
It is not, though.
vince
Jan 21 2023 at 3:24pm
Hogwash.
Jon Murphy
Jan 21 2023 at 4:02pm
The fact that there are other considerations about whether or not to land on the moon does not override the fact one needs air to survive on the moon.
The fact there are political considerations about trade does not diminish the economic reasoning I laid out, nor do they overrule it. If they’re smart, they take it into consideration.
Scott Sumner
Jan 21 2023 at 12:48pm
“China has made no secret that it considers the U.S. an enemy”
Really? Evidence?
Warren Platts
Jan 21 2023 at 5:19pm
Unrestricted Warfare
seer of things
Jan 22 2023 at 10:19am
A quote from your source… “suggesting that its release was endorsed by at least some elements of the PLA leadership”.
Interesting wording. It’s release was endorsed. Is this the best you can do?
Richard W Fulmer
Jan 21 2023 at 7:01pm
For example:Top China General hints at likelihood of war with US as Beijing backs huge military boost
It’s unlikely that even China’s top general would make such a not-so-veiled threat without prior approval from Xi.
Scott Sumner
Jan 22 2023 at 12:04am
I’m not about to read a 200 page book—just tell me which page supports your claim.
Warren Platts
Jan 23 2023 at 5:03pm
The entire book Unrestricted Warfare is an analysis of the United States and the U.S. military and asymmetric means to defeat the USA. For anyone who would presume to understand the modern PRC, it is mandatory reading.
Qiao & Wang were the equivalent of U.S. Army majors when they wrote the book. They both eventually were promoted to generals. I think they are retired now.
But anyways, the book can be distilled into a single sentence as the authors themselves did: “The only rule in Unrestricted Warfare is that there are no rules.”
Note that General Secretary Xi echoed this language in his recent speech “Hold High the Great Banner of Socialism with Chinese Characteristics and Strive in Unity to Build a Modern Socialist Country in All Respects” (Report to the 20th National Congress of the Communist Party of China, October 16, 2022)
“China is working to achieve modernization for more than 1.4 billion people, a number larger than the combined population of all developed countries in the world today…. We will neither pursue grandiose goals nor go by the rulebook.” [my emphasis]
Monte
Jan 22 2023 at 1:02pm
You don’t have to be a foreign policy expert to find evidence of this. A simple Google search will reveal plenty.
Former Telecom Executive Jon Pelson, in this Epoch Times article, cogently argues for why China views the U.S. as an enemy.
Hal Brands and Michael Beckley in their book, Danger Zone, also offer a compelling case:
This is more than just perception. You’re familiar, I presume, with MIC2025, the CCP’s national strategy and industrial policy to “decouple” (decouple and disentangle appear to be getting used interchangeably is this discussion) from the rest of the world and move it’s economy beyond just being a producer of cheap goods into a technology-intensive powerhouse in direct competition with the U.S.?
Although we’re deeply interdependent on one another, the undercurrent of U.S.-China decoupling continues. And I don’t see how can we view China’s massive frontal assault on U.S. technology and industry as anything less than a declaration of economic war.
Scott Sumner
Jan 22 2023 at 2:38pm
The Epoch Times? Seriously? Thank you for confirming that you have no evidence.
And I do not regard economic policy as “war”.
Monte
Jan 22 2023 at 3:28pm
Rather than address the issues in the articles presented, you attack source. Disappointing, but thanks for clarifying objective position.
Monte
Jan 22 2023 at 3:36pm
And you may not view economic policy as war, but China certainly does.
Thomas Lee Hutcheson
Jan 21 2023 at 8:20am
European dependence on Russian Gas is not an argument against engagement generally. That could still include avoiding undue dependence on any single source of a key commodity. And engagement (very selective restriction on trade with adversaries) increases the value of the treat of increased restriction.
vince
Jan 21 2023 at 2:14pm
Yes, the value of diversification. What you might lose in great gains you might gain by avoiding great losses.
Jon Murphy
Jan 21 2023 at 3:15pm
All the more reason for free trade. Free trade rewards diversification.
vince
Jan 21 2023 at 3:23pm
It does except when it doesn’t.
Jon Murphy
Jan 21 2023 at 4:03pm
Free trade rewards diversification. Those who do not diversify end up pushed out by the market. We see it all the time. That’s why industrial planners must override the diversification instincts of markets (usually because there are “other considerations” other than economics).
Warren Platts
Jan 21 2023 at 5:24pm
No. Free trade rewards national specialization.
Jon Murphy
Jan 21 2023 at 6:03pm
No. That’s a straw man you created to “disprove” price theory. You’ve been corrected but the fact you refuse to acknowledge your error indicates at this point the error is intentional.
TMC
Jan 22 2023 at 11:40pm
“Free trade rewards national specialization. ”
Yes, of course it does. Basic trade economics. And while this brings more efficiency it also brings the risk of losing your sole source, whether it be war, natural disaster, or even covid.
It is more expensive to maintain multiple sources, but the cost mitigates disaster. You pay for home insurance though you hope you never have a fire. Keeping a single source is like skipping out on your home insurance. It makes economic sense, until it doesn’t.
Jim Glass
Jan 23 2023 at 7:45pm
Free trade rewards diversification.
Too bad the Germans didn’t think of that.
I wonder why they didn’t. It’s pretty much 101.
Ah, perhaps their wise man Schröder advised them: “Why waste money preparing alternate energy sources that you will never use? Why would you, when you’ve got the best locked in? And my good friend who provides them to you is your friend too, a friend to all. What could go wrong?”
Or not. Thinking like this abounds on its own.
Warren Platts
Jan 21 2023 at 10:56am
For the sake of the argument, I will stipulate that somehow, the China Shock has been great for America. But if the China Shock has been hugely beneficial to our adversary, China, given that they are an adversary that could turn into an enemy, then geopolitically, that is not a gain for the USA.
{citation needed!} Honestly, Scott, where did you get this idea? Just look at the USA: in our “unipolar moment” that lasted maybe 20 or 30 years, we were constantly at war. All wars of choice, too. Why do you think the PRC would act any differently? Actually, they haven’t.
The thing is, most Americans suffer under the illusion that “China” is some kind of nation state. It is not. It’s an empire after the fashion of the old Roman Empire. As such, it depends on for its integrity a willingness and capacity to employ indiscriminate mass slaughter whenever necessary to preserve itself.
That is why democracy can NEVER take hold in “China” as it exists now: the people would vote to split up the place.
And it’s not just “Inner Asia” (Tibet, Xinjiang, Inner Mongolia, Manchuria, Hong Kong, Taiwan) that would vote to split up. The centrifugal forces within “China” proper are huge. Cantonese and Shanghaiese speaking people resent Mandarin being forced on them. If you want to see the natural state of affairs, look at a map of China after the collapse of the Manchu Empire but before the Communist reconquest.
Thus “China” is an anachronism that has no place in the 21st century. It will inevitably balkanize into 20 or 50 separate nation states. As a mainland Chinese friend of mine said, “China is not a nation: it is a prison of nations.”
Thus the geopolitical question for the United States ought to be: (1) Shall we continue to provide the Communist Party the means to maintain its stranglehold on its Empire? (2) Should we just stand aside and watch what happens? or (3) Perhaps we should encourage the separatist elements that pervade the CCP Empire?
Jon Murphy
Jan 21 2023 at 11:28am
Your conclusion is too strong because of the word “could”. Whether or not trade with China would be a net loss for the US geopolitically will depend on the probability value you assign to “could” relative to the expected losses from a war. Depending on the size of the probability you put there, trade could be a net gain, a net loss, or net zero. But, unless one rejects basic price theory, increased trade reduces that probability, while reduced trade increases that probability.
vince
Jan 21 2023 at 1:32pm
It’s not just the probability, but the utility function, too. And you’re confusing probability with uncertainty.
Jon Murphy
Jan 21 2023 at 1:38pm
No, I’m making an expected value argument
vince
Jan 21 2023 at 1:41pm
That’s great in a classroom but not the real world.
Jon Murphy
Jan 21 2023 at 2:47pm
It’s literally how we make decisions in the real world. You’re making an implicit expected value argument.
vince
Jan 21 2023 at 3:26pm
Who is “we”?
Jon Murphy
Jan 21 2023 at 6:00pm
You don’t know what expected value is, do you?
vince
Jan 22 2023 at 12:48pm
Sure. It’s a classroom technique that’s not used in the real world.
Jon Murphy
Jan 21 2023 at 12:43pm
It’s a fairly well-established result. I have a brief lit review in my paper In Defense of Liberal Peace.
Scott Sumner
Jan 21 2023 at 12:44pm
Almost everything in your comment is wrong. China is 92% Han, which is far more homogeneous than most nation states. China does have dialects, but the written language is unified. The population has migrated widely and is increasingly mixed. It’s highly implausible that China would divide up into 20 countries.
Warren Platts
Jan 21 2023 at 5:14pm
Scott, that’s like saying that Europe is 92% European, which is true as far as it goes, but the statement masks a huge diversity. How could it be otherwise? Europeans also have dialects and mostly share the same alphabet. Yet every attempt to “unify” Europe has thus far ended in failure, the current Russian attempt notwithstanding.
Ask yourself this question: What does the CCP leadership fear above all else? The United States? Nope. What they fear is “splittism” — an English word of Chinese origin (分裂主义). This is not a secret. It’s in their public speeches. What they fear most of all is a “Chinese Gorbachev” who would preside over a peaceful disintegration of the PRC.
The proof is their ruthless persecution of anyone who advocates “splittism.” For example, Páng Jiàn (庞健), aka Jacob Pius, a Roman Catholic from Hebei province (the heartland of “China”), was charged with “suspicion of splitting the country” by the CCP in January 2021 merely for publishing maps of the historical homelands of the many nationalities that live within the Communist Empire. He is still in prison.
Jon Murphy
Jan 21 2023 at 6:00pm
You have absolutely no clue what you’re talking about, do you?
Scott Sumner
Jan 22 2023 at 12:07am
“Europeans also have dialects and mostly share the same alphabet.”
Sorry, but you seem to know almost nothing about China. I suggest that you might want to educate yourself on the subject before speaking with such confidence.
Robert Benkeser
Jan 21 2023 at 11:02am
While I agree with most of your points, I think you are only half-right here:
1. The argument that reliance of Russian gas would push Europe toward appeasement of Russia.
2. The argument that reliance on Russian gas would have devastating consequences for Europe’s economy in the event of war.
Neither prediction panned out.
I would say that Europe’s reliance on Russian gas led to appeasement from 2013 through most of 2022. They only belatedly recognized the threat Russia posed.
Also, after reading Leif Wenar’s Blood Oil, I was persuaded that there is a good case that we should not morally be trading with authoritarian regimes that use violence to steal natural resources from their own people. It’s hard to say whether the economic uplift to those people from free trade offsets oppression and violence in that case.
Scott Sumner
Jan 21 2023 at 12:51pm
I see a lot of faulty reasoning. People say X doesn’t prove Y. That’s almost always true in social science. But when proponents of Y keep citing X as powerful evidence for Y, and X turns out to be wrong, that weakens the case for Y.
Update your priors!
Grant Gould
Jan 21 2023 at 12:59pm
If only there were a way for “America” to sanction “China” without sanctioning actual trade between an actual American person and an actual Chinese person!
But since there isn’t, sacrificing the gains from trade between individual human beings because of some rivalry of nations doesn’t even begin to pass any reasonable ethical test.
I agree that the US government should probably refrain from doing business with the Chinese government. But why not leave the rest of us out of it until you Nation people can sort your stuff out?
vince
Jan 21 2023 at 1:40pm
Why can’t economists sell the narrative? Could it be wisdom of the crowd?
Jon Murphy
Jan 21 2023 at 2:48pm
It’s not wisdom of the crowd because the crowd is unaware of the empirical fact Scott points out.
vince
Jan 21 2023 at 3:28pm
How do you know what the crowd is aware of?
Jon Murphy
Jan 21 2023 at 4:04pm
You said they were unaware of the empirical fact in your hypothetical.
vince
Jan 21 2023 at 4:28pm
Hogwash.
Mark Barbieri
Jan 21 2023 at 6:15pm
You say “An enemy is an adversary that has turned violent.” Does that include inward violence against its own people? It feels like there is still need for judgment. Sometimes countries are justified in violence against other countries and sometimes countries are excessively violent against their own people.
Scott Sumner
Jan 22 2023 at 12:11am
China is a strikingly non-violent country, given its population of 1.4 billion. The main problem in China is not internal violence, it’s internal repression (especially in minority areas). I’m not happy with that repression, but I don’t see how refraining from trade would help the situation—indeed I suspect it would make it worse. What’s the level of repression in North Korea?
MikeDC
Jan 23 2023 at 2:56pm
An enemy is an adversary that has turned violent.
This seems designed to distinguish Russia from China, but it’s not convincing. China was just as willing to use violence in its suppression of Hong Kong as Russia in its suppression of Ukraine.
The difference is simply that China is much stronger and more effective in both absolute and relative terms than Hong Kong than Russia is to Ukraine.
They are powerful enough to take what they want from the weak without challenge. That’s not an argument for trading with them.
Possibly the argument should go the other way. The biggest gains are likely to come from trading with the folks who, at the margin, are so desperate that they’re willing to contemplate violence. On the other hand, the odds of getting a lot out of a deal with a near peer who can successfully coerce everyone into accepting its terms is quite low.
Jens
Jan 22 2023 at 4:55am
The conclusions are not wrong by themselves, but the emphasis is questionable and thus also the evaluation of causalities and reasons. Ultimately, a text that fits into the “everyone thinks they’ve always been right on almost every issue, by and large” series.
Richer countries are more peaceful than poorer countries, but in the case of Russia, there appear to be motivations, path dependencies, and processes that can eclipse impoverishment. Relative wealth alone does not make peaceful, and the social processes that can prevent peacefulness or fuel bellicosity are much more relevant than economic wealth or poverty.
Moreover, the relatively benign outcome of the gas crisis in Europe to date has not necessarily been achieved despite worsening government actions. There has been some intervention in cost allocation, but that has been far from all that governments have done to secure supply. Social appeals and risk assessments have also been much more important than price incentives. The entire energy sector is regulated to the hilt – before, now and after. If that were different, everything would be better or worse or just as good. Nobody knows. And last but not least, Europe actually just got lucky with the weather this winter.
All these points that have been omitted may in turn have an impact on the evaluation of free trade. What is said here is simply not enough, the ceteris paribus is huge. But my comment should also not be interpreted as a direct contradiction.
I also don’t really like the adversary/enemy distinction because an adversary or opponent is someone with whom you can agree on some principal basis and disagree on some intermediate or sectional goals. But an enemy can also simply not have resorted to violence yet.
MarkW
Jan 22 2023 at 6:10am
What the advocates of isolating China here aren’t thinking about is that the process of ‘disentanglement’ itself via bans and tariffs will be perceived (accurately) on both sides by both governments and ordinary citizens as hostile, unfriendly acts that will promote the idea that the U.S. and China are enemies, increase feelings of enmity, AND reduce the costs of potential conflict. If you were to succeed in forcibly disentangling China completely from the West, what would it then have left to lose in forcibly taking Taiwan? To the contrary, disentanglement would like cause enough economic pain on both sides that the effects in China might tempt leaders to restore popularity via a war of conquest (to show their people that China can’t be ‘pushed around’, etc).
On the other hand, significant ‘natural’ disentanglement has been happening as various companies come to see that relying exclusively on China for their production represents an unacceptable geopolitical risk. That process is not driven by state actions and does not heighten tensions but rather gives Chinese leaders and citizens a chance to reconsider the impacts of an aggressive reputation in a non-confrontational environment which doesn’t get backs up and generate more us-vs-them thinking. Maybe surprisingly, this seems like another situation where it would make sense to let markets (e.g. the distributed decisions and actions of countless free-trading individuals and organizations) take the lead.
Warren Platts
Jan 22 2023 at 1:41pm
The idea that we can, through our own actions (other than sheer military deterrence) somehow “shape” China’s behavior is a fool’s errand. China is going to do what China is going to do; or more precisely, they will do whatever General Secretary for Life Xi tells them to do. For example, how has “engagement” helped out the plight of the Uighurs and Tibetans? And has all this free trade made an invasion of Taiwan less likely? Hardly. What trade has done is transform a backward, 3rd-world land with zero ability to project force beyond its borders into a peer-level military powerhouse. Before free trade, China simply did not have the capability to invade Taiwan; now, thanks to trade, it does. As for the Uighurs, Tibetans, and other ethnic & religious minorities and assorted political dissidents, economic growth and technology transfers have enabled a totalitarian police-state that would make George Orwell blush.
vince
Jan 22 2023 at 2:33pm
Good point. Unintended consequences. That which is seen and that which is not seen.
MarkW
Jan 22 2023 at 4:36pm
The idea that we can, through our own actions (other than sheer military deterrence) somehow “shape” China’s behavior is a fool’s errand.
I disagree strongly. Both the U.S. and Chinese government respond to each other’s behavior (of course along with many other factors). The idea that we can have no effect is what is foolish. But of course ‘influence’ does not mean ‘control’.
For example, how has “engagement” helped out the plight of the Uighurs and Tibetans?
Along with Scott, I believe their treatment would be far worse if China were fully isolated and had no reason at all to care about international opinion.
And has all this free trade made an invasion of Taiwan less likely?
Almost certainly, yes, it has.
Before free trade, China simply did not have the capability to invade Taiwan; now, thanks to trade, it does.
And how do you know this? It was long before my time, but I seem to remember that China played rather an important military role in the Korean war and became a nuclear power LONG before normalized relations, economic liberalization, and free trade with the U.S. began.
As for the Uighurs, Tibetans, and other ethnic & religious minorities and assorted political dissidents, economic growth and technology transfers have enabled a totalitarian police-state that would make George Orwell blush.
The authoritarian police state was obviously VASTLY worse under Mao than under Xi (one way we can tell — tens of millions died). I really wonder how much you know about Chinese history or current conditions in China. For example, do know anybody personally who’s lived in China? Or do you just watch Fox News?
Warren Platts
Jan 23 2023 at 4:16am
Yes of course I know people who live or have lived in China. They’ve been to my house. My wife would play Mahjong with them. Some I correspond through twitter. Others I actually trade with because if you need computer parts, China is only place to get them most of the time. Some of them are completely apolitical. Others are CCP true believers. Some are Uighurs and Tibetans. Some are Taiwanese. Others are American expats. And many other mainland natives who just want to blow up the place and Balkanize the old Manchu Empire. Because that’s all it is ultimately: a reconstituted Manchu Empire. The idea that the current “Chinese” borders are legitimate because of what some non-Chinese speaking Manchurians conquered by force a few hundred years ago strikes me as highly ironic. And yes, I am student of Chinese history. I just finished a 600 page small print book on the subject a couple of months ago. The fact is, not only would the world be safer if “China” were split up into about 20 different countries, “China” itself would be better off. The 1920’s so-called warlord era was actually a time of great cultural flourishing. The only reason the place got reconquered was because of the Soviet Comintern who materially aided both the Kuomintang and the Communsts because Soviets wanted a powerful counterbalance against Japan and the Western concessions. Indeed, if you want to go back far enough, the true golden age of China was the so-called Warring States Period that was when Confucius flourished.
Jim Glass
Jan 22 2023 at 2:01pm
The Tucker interview was very interesting. Thanks for that.
I’m thinking about buying the book, but the Kindle price is near the highest I’ve ever seen. It’ll have to come down a bit. I don’t suppose it’s going to make it to audio … ?
Jim Glass
Jan 22 2023 at 2:34pm
I lean toward engagement with our adversaries
Engagement is essential. But terms must be defined. We had plenty of engagement with the Soviet Union for 50 years, but not much trade.
Engagement with our adversaries gives both sides a strong incentive to avoid war.
If the definition here is “trade”, this has been debunked repeatedly from Norman Angell to Putin. Before 1914 Europe was a total free trade zone, with a level of trade that wouldn’t be matched again until the 2000s. Angell famously wrote that any serious war would so disrupt critical trade that all the nations of Europe would be ruined. He was right, and everyone knew it — and when the war broke out, this didn’t delay things for a minute. You can’t find any important figure on any side saying a word about it.
As to Putin, he consciously tanked his own economy for the last decade by slashing trade to go autarkic and be “trade immune” for his future conflicts. Germany and the EU were playing this “trade reduces incentives for war” game solitaire.
Point: Nations do not go to war over national interests, because they do not have interests. Regimes go to war, regimes are people and they very much have interests. Liberal democratic regimes value trade and prosperty. Authoritarians don’t, they just value their own regimes, Franz Joseph to North Korea to Putin. They’ve blown up prosperity countless times over pursuing what was more important to them than prosperity. See 1914, see Mao, endless examples.
The key to preserving peace is engaging the other regime in terms of what is most important to it. Instead of assuming that what would work for you will work for it too, and playing solitaire.
See Bruce Bueno de Mesquita, he’s been on Econtalk a number of times.
we also know that richer countries tend to be more peaceful.
Do we? I used to believe this until I dug into it. First, in our lifetimes, who’s fought in more armed conflicts than the USA? (Well, we can afford it!)
As to major wars, this may be a statistical artifact. Liberal democratic regimes do not go to war against each other, they’ve grown in number greatly, and generally are the richer states. So it looks like the rich are more peaceful. (See Bruce.) But look again. The USA is near always fighting non-liberal democrats somewhere. Lots of wars have been started by the richest autocratic states. In 1914 Germany had the gangbuster economy of a free trade world.
Scott Sumner
Jan 22 2023 at 2:45pm
“Before 1914 Europe was a total free trade zone, with a level of trade that wouldn’t be matched again until the 2000s.”
This is just absurd. There were lots of trade barriers. Please check your facts before commenting.
https://www.press.umich.edu/pdf/0472113054-ch3.pdf
Jim Glass
Jan 23 2023 at 7:21pm
This is just absurd. There were lots of trade barriers. Please check your facts before commenting.
As Colonial Empires still existed, of course there were trade barriers.
The point was free trade was higher and freer then than it ever was before or would be again after 1914 — in merchandise, capital movement, and people movement — so if trade prevents war, that’s when you would look to see it do so.
But that was just my recollection, and I’m getting old. You’re right, I should verify the progress of my dementia before posting…
Larry
Jan 22 2023 at 4:48pm
I worry that Taiwan is about to turn China into an enemy. We have apparently decided that it is worth the cost. Thus it is sensible to consider how policy should prepare for such a change. Seems reasonable that there are useful changes that would not increase the likelihood of war.
Jon Murphy
Jan 22 2023 at 6:23pm
One other thing to keep in mind:
Since trade is a two way, mutually beneficial, street, concerns about entanglement run both ways. The potential adversary has to worry about losing their benefits to trade if they try to misbehave.
Jim Glass
Jan 23 2023 at 6:45pm
Since trade is a two way, mutually beneficial, street, concerns about entanglement run both ways.
Although not to the same degree should two regimes value the gains from trade differently relative to their other priorities.
The potential adversary has to worry about losing their benefits to trade if they try to misbehave.
Again assuming the two regimes value trade similarly.If one of them devalues economic growth generally compared to, say, military expansion, and adopts autarkic policies to make itself “trade immune” in time for its next military adventure, then concludes (rightly or wrongly) it has achieved that goal….
I’m trying to think of an illustration of what might happen next.
Jose Pablo
Jan 22 2023 at 9:04pm
“that should not include trade with China where we would be overly dependent in vulnerable ways.”
The problem is that individual companies (not “general wes”) engage in trading with other companies in China. I don’t see how the “we” on Tucker statement is going to know when individual companies start to be “overly dependent in vulnerable ways”.
Who and how is going to centrally assess this “overly dependency” (whatever it means)?
The “individual company” perspective offers an interesting solution that does not require “global mega wisemen” designing all-encompassing. bullet-proof solutions:
a) the company should engage in whatever trade activity makes economic sense to engage
b) the company should have a contingency plan in place in case that problems arise with a particular supplier. And a properly run “scenario analysis” that includes a good understanding on what these “problems” maybe, how they unfold, and the early warning signals that should trigger the implementation of the contingency plan. Nothing particularly new in management.
It could be the case that the weight of a particular supplier should be limited due to this risk analysis. But this can only be properly analyzed, decided and updated at the “individual company level”.
Jon Murphy
Jan 23 2023 at 8:03am
Good point, Jose. One of the crucial mistakes economic nationalists make is to forget methodological individualism and treat a nation, not as an emergent order the result of individuals acting, but of a thinking and conscious being. Rather than take “The United States of America” as a shorthand for “the multitudes of people within the boundries of the United States of America,” they take it literally. Consequently, they land in all sorts of false conclusions.
Companies are well aware of becoming “overly dependent.” Indeed, last semester when I was teaching an MBA course, that particular topic came up a lot. All these students loved discussing ways they made their supply lines more robust. Centralized planning reduces independence of supply lines and increases dependence since everything has to comply with The Plan.
Jose Pablo
Jan 23 2023 at 10:40am
Gas buying companies all over Europe were / has been trying to develop regasification terminals and storage capacity for more than 20 years. With limited success (apart from Spain where a significant regasification capacity was developed … but a giant storage project was abandoned after completing its construction!!!).
The main concern back then, was not even the security of the Russian or Algerian supply (Algeria supplies Europe with pipeline gas thru Spain and Italy). What the European individual companies were after was, mainly, having “potential” access to new sources of gas (Egypt or the Caribbean) to gain bargaining power when negotiating supply agreements with the “traditional” suppliers. Pure day to day management no need for the grand scheme of geopolitics.
You sure can guess “who” was the main obstacle for the development of these projects: of course, governments! All kinds of them: national, regional, local …
To develop expensive, dangerous in the collective mind of voters, “ugly” infrastructure is not at all easy. Many, many hours of expensive effort went down the drain because the philosopher kings of the time, subject to the wrong kind of incentives, just “did not see it”
But “central planners” like Tucker, sure got it right this time! They know it all. All the skin he has in this game sure sharpen his mind
I have witnessed “them” being the “problem”. I have very little faith they are going to be now the “solution”, telling individual companies what to do to avoid being “overly dependent”. Central planners love this: teaching birds how to fly.
Jon Murphy
Jan 23 2023 at 11:06am
Yup. One of the things that annoys me about central planners (and this goes to Scott’s recent post on zoning as well) is that these supposed reformers ignore institutional constraints. They see some outcome, merely assert it is bad, and conceive of (usually self-destructive) ways to overcome the problem as they see it. But rare do they explore the current web of rules, regulations, customs, culture, laws, legislation, etc in which these situations arose. And when they do, it’s usually some simplistic or vague claim.
Warren Platts
Jan 23 2023 at 2:30pm
<blockquote>Good point, Jose. One of the crucial mistakes economic nationalists make is to forget methodological individualism and treat a nation as a thinking and conscious being; they take it literally.</blockquote>
Talk about flooding the zone! So let me get this straight: economic nationalists are actually insane schizophrenics? lol.. Literally no one says that a nation is a “thinking and conscious being.” Certainly, I have never said that and you will never find a quotation where I did say that! 😀
Jon Murphy
Jan 23 2023 at 3:06pm
Note that you changed the verb. The verb I used was “treat” not “say.” With few exceptions, probably no one literally thinks a nation is a thinking and conscious thing (although you have referred to it as a “super organism” which, economically, implies thinking and consciousness. I doubt that is your intention, but it is the implication of your arguments). Rather, the justifications and models used remove any individualism from the whole process and model things as the results of a decision by the nation rather than the emergent results of a multitude of decisions made by the vastness of individuals both inside and outside the political boundaries.
Jose Pablo
Jan 23 2023 at 4:12pm
“model things as the results of a decision by the nation ”
That’s precisely what happens. And as a result of this “wrong modeling” the “national decission makers” (with a clear interest in believing and perpetuating the wrong model) find themselves in the “obligation” to define and “force” this “national” behavior.
What they achieve instead is captured, with accurate precision, in Jon’s wording from a previous answer: “reducing the independence” of the actual decision makers (the individuals), which as a consequence, have to work harder to achieve suboptimal results in this “reduced solution space”.
Whith this “framing” in mind (thank you Jon), the conclusions are clear: the individuals should make all the decisions about international (and interstate!) trading (including “over dependency” considerations) and the pompous “national decision makers” should devote their time to truly “national” enterprises like winning wars, clearing crimes and administering justice in a reasonable time frame
They should appreciate this opportunity of focusing themselves in areas were their perfomance is so terrible!
Warren Platts
Jan 23 2023 at 3:32am
I actually agree with this analysis. But the implications for U.S. trade relations with the PRC are less clear. If the losses from the loss of trade are not all that catastrophic (as proved by the Russian natural gas example), then the gains from trade must not be very “huge.”
Thus, if a sudden, forced decoupling is not all that traumatic, then a controlled, gradual decoupling that happens before the inevitable crisis will be even less traumatic.
As for the idea that the crisis is not inevitable, who among us predicted the current war in Ukraine? No one. Therefore, if any priors need to be updated, the percentage chance of the PRC’s “peaceful rise” must be reduced. Also, I urge interested readers to google “Thucydides Trap” if they’ve never heard of it.
Jim Glass
Jan 23 2023 at 6:13pm
Imagine, if you will, the USA steadily slashing its defense budget to a fraction of what it is today, then hiring as Secretary of Defense a person with no, zero, military experience — from the Office of Consumer Protection. Whose apparent agenda is to watch the remaining military “wither away” (as Marxists and Anarcho-Libertarians dream of for the rest of the state).
What message would this send to the Putins of the world — and to the US’s allies? Surrender? Better start appeasing now? Nah. Couldn’t happen.
But this is exactly what the Germans did. And after 11 months of the Ukraine war, the “Consumer Protection” Minister of Defense was forced out only last week. Germany now has had a real Defense Minister for all of four days, since the 19th. He’s conducting an urgent inventory of the military equipment they have, because, well, they don’t know.
Meanwhile all of Europe wants to send Leopard tanks to Ukraine (there are 2,000 in storage) but Germany is blocking them — breaking the common front and making Russia Today chortle with glee. Why?
Olaf Sholz, the Chancellor, looks like he’s trying to deliver the tanks and clean out the muck from the pro-Russian stables of his SDP party. But it took him 11 month just to be able to change his own defense minister. How did the political-security situation in Germany and the SDP (the Greens are the militant faction in the ruling coalition!) degrade into this sorry state?
In retrospect, it probably would have been better if Europe were less dependent on Russia gas.
Yeaah … but not because it turned out to be a bad business deal for them, forcing them to pony up for alternate supplies. That’s trivial.
Rather, because pipelines of cash coming from a hostile, aggressively revanchist regime, with known ambitions for further conquest, are going to be used to corrupt your political and security establishments to facilitate those ambitions. This isn’t predictable?
This is not new to political science. It’s Tammany Hall’s famous “honest graft”. ‘We take money legally from a source, legally spread it around to make friends in politics and legally elect more friends, get more money, repeat … our friends adjust certain govt programs, the next Police Commissioner is promoted directly from being 3rd-assistant at the DMV. Free country, free markets, legal politics, what can be wrong? who can complain?’ Writ large to international security and war & peace.
Gerhard Schröder, the German Chancellor & SDP leader who started all this, now is collecting 7-figures a year from Gazprom as a happy pal of Putin’s. That’s his laughing (literally) attitude: free market, free trade, he’s rich, what’s wrong? Who did he and his minions help into various security and political positions? Imagine & iterate, down to recruiting military talent from Consumer Affairs.
Then there’s classic illegal corruption. Martti Kari, former Finnish intelligence colonel, gives just about the best video presentation anywhere on the Russians, IMHO. (Enable subtitles.) He’s named names of Finnish and German officials bought by the Russians. Finland’s former Prime Minister Alexander Stubb has an excellent YouTube channel on which he’s covered the same ground, a bit more diplomatically.
IMHO, such voluntary disarmament for pay, and self-corruption, is “effective appeasement” enough to explain Ukraine 2022, but as to the literal thing…
Jim Glass
Jan 23 2023 at 6:25pm
The argument that reliance of Russian gas would push Europe toward appeasement of Russia [didn’t pan out]… Europe did not appease Russia.
What? I’ve heard William Hague, the UK’s foreign secretary in 2014, and Alexander Stubb, Finland’s prime minister then, both say that the bulk of the EU wanted to impose much tougher sanctions on Russia when it invaded Ukraine in 2014, but Germany said “nein! nein! nein!, peace through trade!” and blocked them. In 2008 Stubb negotiated the settlement after Putin invaded Georgia, and said it was much the same then.
What lesson do we all know Putin learned from those events?
When one says “you invade Czech, er, Georgia then Crimea then Eastern Ukraine, we wag our finger at you”, how is that not appeasement? Chamberlain at least could say he knew he had a serious problem with Hitler but lacked attractive options. He didn’t appease to keep deep-discount free trade beer and chocolates coming to Britain from Germany. The EU knew it had a problem with Putin and did have options, but Germany blocked them to keep the bargains coming in and get more.
The only way I can understand “Europe did not appease” is as saying (most of) Europe finally acted after the 2022 invasion, so there was no appeasement earlier. Which is like saying Britain and France finally acted after the 1939 invasion, so there was no appeasement earlier. (And Britain and France were rearming in 1938 while Germany was still disarming until 2022.)
To appease Putin what more could the Germans have done? They largely disarmed, named a defense minister from their Dept. of Consumer Affairs, blocked serious sanctions after the 2014 Ukraine invasion, pushed the “trade will make Putin more peaceful and democratic” rationale on the EU over the objections of the states that knew better, adopted an explicit “friends with Russia” policy, and enjoyed having members of their elite openly on Putin’s payroll, like Schröder. What more to do? Leave NATO outright?
Alexander Stubb has an interesting video discussing what Europe got wrong before 2022. His whole channel is worth a good look-see.
Jim Glass
Jan 23 2023 at 10:22pm
“China has made no secret that it considers the U.S. an enemy”Really? Evidence?
I really doubt that Xi feels any desire or need to start a fight with America directly, any time soon, as we are very mighty and far away.
OTOH, he is without doubt an avowed enemy of western liberal democratic capitalism. Which may not presage happy things for us, especially as to our commitments to our allies in his neighborhood. We have a real “regimes disconnect” here. Paul Tucker referenced Xi’s “Seven Nos”…
https://www.foreignaffairs.com/china/xi-jinping-his-own-words
Also, Xi’s own words say: Marx was “the greatest thinker in human history”, Marxism-Leninism is the one true path, capitalism will inevitably perish, Chinese socialism will supplant America to lead the world (though it will take a while), and so on. But why didn’t the Soviets accomplish all this first?…
Read the whole thing.
Soviet Communists weren’t “man enough”, and lacked sufficient “tools of dictatorship”. There are a couple thoughts!
Also, Xi’s military released a video of it using a nuclear-capable bomber to blow up Americans in Guam. That wasn’t friendly. 🙁
What to make of all this? I dunno. It’s complicated. Xi seems to think he’s picking up the ball the Soviets fumbled.
Were the Soviets our adversaries or our enemies?
Nick O'Connor
Feb 3 2023 at 5:06am
Your list of three things to consider in weighing up whether we should favour engagement with adversaries is missing at least one:
4. Engagement with our adversaries can turn out to have been a mistake if they become our enemy, even if we have not made the mistake of becoming dependent on them.
The main reason that it was a mistake for Europeans to give Putin large amounts of money in exchange for oil, gas, etc. is that he used that money to finance the war. The world would be a better place if Putin had had less money.
The main reason for supporting sanctions on Iran is that those sanctions have meant that Iran is much, much poorer than it would otherwise have been.
A mutual increase of prosperity is a bad thing if your adversary uses that increase in wealth to do terrible things. “Richer countries tend to be more peaceful” would also apply to people, I would have thought; but that doesn’t mean that you should give money to someone who tells you that they intend to use it to buy weapons and kill innocent people with them. Nor does it mean that, when challenged about your behaviour, it would be a reasonable defence to say “but richer people tend to be more peaceful!”.
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